Provisioning Center Sales Tax Collection – Why & How
Since January 2018, provisioning centers in Michigan legally operating under the state’s Medical Marijuana Facilities Licensing Act (MMFLA) Emergency Rules must collect sales tax. The requirement was released in a notice by the MI Department of Treasury. The notice focuses directly on the Medical Marijuana Industry. The MI DOT made clear that provisioning center sales tax collection is the expectation. Many other state treasury bodies have done the same with their medical cannabis programs.
However, much confusion has surrounded this topic! From rogue consultants telling businesses what they want to hear (no one wants to pay taxes!) to patients pushing against sales tax, sales tax collection has been a difficult concept to accept.
Let’s start with the fact that until recently, Michigan’s medical marijuana businesses operated unregulated at the state level. Though many attempted to pay taxes and run their business legitimately, many more did not. Over the course of the last 10 years, previously unregulated “dispensaries” for the large part did not apply proper accounting. State tax collection was far from a thought point.
If we accept the past and move on with the intention of doing things correctly going forward, it is clear times have changed.
Another trigger of confusion for provisioning centers operating under emergency rules before being granted a state license is which law in fact they are operating under. Without a state license, are these businesses operating under commercial (MMFLA) or “Caregiver” laws (Michigan Medical Marijuana Act, 2008)?
The answer to this question seems pretty simple. However, here again seems to be another hard pill to swallow. Some businesses may claim they are operating under the MMMA until their MMFLA license is granted. This quickly proves untrue however. After all, if the provisioning center is open and operating at all without a fully granted state license, it is only doing so lawfully under rules set forth by the MMFLA.
Another point to note is within the Michigan General Sales Tax Act. The Act states all tangible property (with some exceptions) sold at retail (sold to a patient/customer) is taxable. A provisioning center selling marijuana products, no matter the form, is selling products at retail. Therefore, the sales of these products are taxable
Patient Push Back to Provisioning Center Sales Tax
Businesses like to keep happy customers. The medical marijuana industry is no exception. Patients who have visited the same provisioning center for years may receive a rude shock when charged sales tax for the first time. Unknowingly, they can accuse the business or bud tender of trying to take advantage of them by charging extra. Patients can also take to social media and make the same accusations. Following this subject, we’ve seen several questions in Medical Marijuana specific social media groups over the last few months questioning the collection of sales tax. Early on, many argued against collection and the provisioning center doing so. More recent posts however show growing acceptance of sales tax as more and more provisioning centers become compliant. The confusion hasn’t seemed to clear completely however.
Recently, a provisioning center client operating under MMFLA emergency rules questioned thoroughly the need to pay sales tax. They sought advice from other professionals in the industry as well. These professionals all gave conflicting answers. In the end, we asked the following questions, with the intention of drilling down to clear answers:
1) Does the Company consider itself a retail location operating legally under MMFLA Emergency Rule 19? Does it sell medical marijuana products? Do the products require testing and proper packaging? Is the facility subject to inspections by state officials to determine products meet required specifications?
2) Is the Company operating as a collective group of caregivers providing services of growing marijuana to registered patients and operating under the MMMA? Are cultivation or patient care services provided and ‘advertised’ accordingly?
Asking these questions, the business owner was able to make a clear determination of which business model and state laws the company was operating under.
Patients should pay 6% tax regardless according to the Michigan Department of Treasury notice.
The notice effective in January 2018 states purchases of medical marijuana from a provisioning center are required to have sales tax added. However, the bulletin also states patients providing compensation to their registered caregivers for services must pay Use Tax (also 6%) on these services. The major difference is the patient is responsible for reporting and remitting their own use tax on their annual tax return. Alternatively, businesses collect and remit sales tax.
Provisioning centers should be proactive in collecting sales tax. If there are questions from patients, proper information and references should be available for them to avoid further confusion.
Important to note however, the 3% MMF excise tax becomes effective once granted a MMFLA license.
In perspective, mandating sales tax on medical marijuana provisioning center sales is not any different than what other industries experience. Though Michigan does not tax prescription medicine, it does tax over the counter medicine, including all other natural medicines too.
The next step after determining sales tax collection is required is applying for a Sales Tax License. Fortunately, Michigan is attempting to lead the way in making it easier for businesses to stay compliant. The Michigan Department of Treasury holds frequent outreach events, where business owners can learn in an hour long session how and which taxes they need to pay. Taxes can also be registered for at Michigan Treasury Online, or by completing registration by paper form.
The frequency the business will remit sales tax depends on how much it collects each month. In general, provisioning centers with average sales over $16,667 per month will remit sales tax collections monthly. In most cases, Michigan also offers a small discount for early tax payments, made before their due date. Currently, the state is reviewing appropriate payment options and limitations of cash only business models.
LC Solutions Michigan PLLC can help!
Savvy business owners or managers may prefer to handle their own sales tax remittances. If not, our CPA firm can help! Along with our monthly bookkeeping and CFO services, we provide timely sales tax preparations. Our team can help ensure accurate preparations and submissions made before their due date!
At LC Solutions Michigan PLLC, we encourage all of our clients to be proactive in compliance measures. This includes collecting and remitting sales tax when appropriate. However, we also understand the relative uncertainties of the industry as a whole. In return, we will patiently help guide your business in understanding best accounting and tax practices to comply with – both the why and how.
For more information, or to schedule a no-obligation consultation to discuss tax concerns, bookkeeping, 280E compliance, and other accounting needs, please contact us here.